Ratemaking Seminar Salt Lake City, Utah General Session Monday, March 13, :00 a.m. – 9:30 a.m. Moderator: Brian Z. Brown, FCAS, MAAA Consulting Actuary Milliman, Inc. Managing a Company in the Soft Market

2 Industry has been historically unprofitable Reserve inadequacy Low interest rates Easy to raise capital New entrants Managing a Company in a Soft Market

3 P/C Industry Combined Ratio * 2001 = = = = * = Combined Ratios 1980s: s: s: Sources: A.M. Best; III *05 based on III Earlybird Survey.

4 Combined Ratio: Impact of Reserve Changes (Points) Source: ISO, A.M. Best, MorganStanley, Insurance Information Institute. *2005 is an estimate.

5 Interest Rates: Lower Than They’ve Been in Decades Source: Board of Governors, Federal Reserve System; A.M. Best, Insurance Information Institute

6 Announced Insurer Capital Raising* ($ millions, as of December 1, 2005) * Existing (re) insurers. Announced amounts may differ from sums actually raised. Sources: Morgan Stanley, Lehman Brothers, Company Reports; Insurance Information Institute. As of Dec. 1 (after Hurricanes Katrina, Rita, and Wilma), 19 insurers announced plans to raise $9.95 billion in new capital. Twelve start-ups plan to raise as much as $8.65 billion more for a total of $18.65B. Likely at least $20B raised eventually. Existing companies will continue to find it relatively easy to raise cash…

7 Announced Capital Raising by Insurance Start-Ups ($ millions, as of December 11, 2005) *Chubb, Trident are funding Harbor Point. Announced amounts may differ from sums actually raised. **Stated amount is $750 million to $1 billion. ***XL Capital/Hedge Fund venture. Arrow Capital formed by Goldman Sachs. Sources: Morgan Stanley, Company Reports; Insurance Information Institute. As of Dec. 11, “The Class of 2005” (13) plans to raise as much as $8.75 billion. More, likely to come. …so will start-ups